Strategic risk aversion

Vol: 
25/2008
Author name: 
Shaffer S
Year: 
2008
Month: 
August
Abstract: 

This paper demonstrates that exaggerated risk aversion may comprise a rational form of strategic behavior in the face of asymmetric information. Unlike some other forms of strategic behavior analyzed previously, this behavior confers a benefit in the form of higher ex post consumption (not merely higher expected consumption or expected utility) and whether or not markets are perfectly competitive. Such behavior might help explain historically large equity premia.

Publication file: 

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